ASSET PURCHASE AGREEMENT
by and among
WCH, INC.,
as the Purchaser,
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.,
as The Barbers
and
WE CARE HAIR DEVELOPMENT, INC.
as the Seller,
Effective as of December 24, 1996
TABLE OF CONTENTS
Section Description Page
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SECTION 1
SALE AND PURCHASE OF ASSETS.............................. 2
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1.1 SALE AND PURCHASE......................................................... 2
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1.2 CONSIDERATION............................................................. 2
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1.3 NO ASSUMPTION OF LIABILITIES.............................................. 3
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1.4 SALES TAXES............................................................... 3
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1.5 THE BARBERS GUARANTY...................................................... 3
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SECTION 2
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER................ 3
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2.1 ORGANIZATION OF THE SELLER................................................ 3
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2.2 AUTHORITY................................................................. 4
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2.3 BINDING OBLIGATION........................................................ 4
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2.4 NO BREACH................................................................. 4
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2.5 FINANCIAL INFORMATION..................................................... 4
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2.6 TRADE NAMES, TRADEMARKS, SERVICE MARKS, AND COPYRIGHTS.................... 5
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2.7 PATENT AND PATENT RIGHTS.................................................. 5
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2.8 FRANCHISE AGREEMENTS...................................................... 5
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2.9 COMPLIANCE WITH LAWS...................................................... 6
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2.10 ACTIONS AND PROCEEDINGS................................................... 6
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2.11 SUPPLIERS AND FRANCHISEES................................................. 6
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2.12 FULL DISCLOSURE........................................................... 7
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2.13 RESOLUTION OF POTENTIAL CONFLICTS OF INTEREST............................. 7
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2.14 TITLE..................................................................... 7
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2.15 NO CONSENT................................................................ 7
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2.16 NO MATERIAL ADVERSE CHANGE................................................ 7
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2.17 COMPUTER RELATED INTELLECTUAL PROPERTY.................................... 8
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2.18 FRANCHISEE BENEFIT PLANS AND INSURANCE.................................... 9
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2.19 TAX MATTERS............................................................... 9
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2.20 DOMESTIC DEVELOPMENT AGENT AGREEMENTS..................................... 9
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2.21 INTERNATIONAL DEVELOPMENT AGREEMENTS...................................... 9
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2.22 ACCOUNTS RECEIVABLE PRIOR TO CLOSING DATE................................. 10
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2.23 CONVERSION OF FRANCHISE AGREEMENTS........................................ 10
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SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER............... 11
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3.1 ORGANIZATION OF THE PURCHASER............................................. 11
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3.2 ORGANIZATION OF THE BARBERS............................................... 11
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3.3 AUTHORITY................................................................. 11
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3.4 BINDING OBLIGATION........................................................ 11
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3.5 NO CONFLICTS.............................................................. 11
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3.6 LITIGATION AND OTHER PROCEEDINGS.......................................... 11
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3.7 WE CARE HAIR(R)CORPORATE SALONS........................................... 12
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3.8 ACCOUNTS RECEIVABLE PRIOR TO CLOSING DATE................................. 12
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3.9 CURRENT MEXICO FRANCHISE OPERATION........................................ 12
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3.10 FRANCHISE OPERATION OF XXXX AND XXXXXXX XXXXXXX........................... 12
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SECTION 4
THE CLOSING...................................... 12
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4.1 THE CLOSING DATE AND PLACE................................................ 12
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4.2 ACTIONS AND DELIVERIES BY THE SELLER AT THE CLOSING....................... 12
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4.3 ACTIONS AND DELIVERIES BY THE PURCHASER AND THE BARBERS AT THE CLOSING.... 13
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SECTION 5
CONDITIONS TO CLOSING................................. 13
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5.1 CONDITIONS PRECEDENT OF THE PURCHASER AND THE BARBERS..................... 13
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5.2 CONDITIONS PRECEDENT OF THE SELLER........................................ 14
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SECTION 6
THE SELLER'S OBLIGATIONS AFTER CLOSING......................... 15
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6.1 FURTHER ASSURANCES........................................................ 15
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6.2 INDEMNIFICATION BY THE SELLER............................................. 15
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SECTION 7
PURCHASER'S OBLIGATIONS AFTER CLOSING......................... 17
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7.1 FURTHER ASSURANCES........................................................ 17
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7.2 INDEMNIFICATION BY THE PURCHASER.......................................... 18
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.......................................................................... 18
SECTION 8
NONDISCLOSURE AND NON-COMPETE............................. 19
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8.1 CONFIDENTIAL INFORMATION.................................................. 19
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8.2 COVENANTS NOT TO COMPETE.................................................. 19
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8.3 REMEDIES.................................................................. 20
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8.4 PUBLIC POLICY............................................................. 20
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SECTION 9
COSTS AND BROKER'S FEES................................ 21
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9.1 COSTS BORNE BY PARTIES.................................................... 21
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9.2 BROKER'S FEES............................................................. 21
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SECTION 10
FORM OF AGREEMENT AND SEVERABILITY........................... 21
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10.1 HEADINGS.................................................................. 21
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10.2 ENTIRE AGREEMENT.......................................................... 21
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10.3 COUNTERPARTS.............................................................. 21
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10.4 SEVERABILITY.............................................................. 21
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10.5 INCORPORATION OF EXHIBITS AND SCHEDULES................................... 21
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SECTION 11
PARTIES........................................ 22
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11.1 OTHER PARTIES............................................................. 22
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11.2 ASSIGNMENT................................................................ 22
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SECTION 12
SURVIVAL OF REPRESENTATIONS AND WARRANTIES....................... 22
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SECTION 13
NOTICES........................................ 22
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SECTION 14
PUBLICITY; CONFIDENTIALITY............................... 23
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14.1 PUBLIC ANNOUNCEMENT....................................................... 23
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SECTION 15
GOVERNING LAW..................................... 24
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SECTION 16
ARBITRATION....................................... 24
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), effective as of
December 24, 1996, is made by and among WCH, INC., a Minnesota corporation, its
successors or assigns, (the "Purchaser"), THE BARBERS, HAIRSTYLING FOR MEN &
WOMEN, INC., a Minnesota corporation ("The Barbers"), and WE CARE HAIR
DEVELOPMENT, INC., a Delaware corporation (the "Seller");
W I T N E S S E T H :
WHEREAS, the Seller is the owner and operator of a hair care products
and services franchise system operating under the trade name and service xxxx
"We Care Hair"(R) with salon locations across the United States and
internationally (the "Business") and desires to sell certain assets of the
Business to the Purchaser; and
WHEREAS, the Seller is the owner of certain franchise agreements of the
Business described and listed on Schedule 2.8(a) attached hereto and
incorporated herein by reference, which the Purchaser desires to purchase in
accordance with Section 1.2(a) of this Agreement (the "Cash Franchise
Agreements"); and
WHEREAS, the Seller is the owner of certain franchise agreements of the
Business described and listed on Schedule 2.8(b) attached hereto and
incorporated herein by reference, which the Purchaser desires to purchase in
accordance with Section 1.2(b) of this Agreement (the "Earn Out Franchise
Agreements;" the Earn Out Franchise Agreements and the Cash Franchise Agreements
are collectively referred to as the "Franchise Agreements"); and
WHEREAS, the Seller is the owner of certain trade names, trade marks,
service marks and other intellectual property rights of the Business described
and listed on Schedule 2.6 attached hereto and incorporated herein by reference,
and all goodwill associated therewith (the "Intellectual Property Rights"); and
WHEREAS, the Seller is the owner of all rights to franchise,
subfranchise, license, sublicense, develop, own and operate hair care salons
under the trade name and service xxxx "We Care Hair(R)" (the "Development
Rights"; the Franchise Agreements, the Intellectual Property Rights, and the
Development Rights are hereinafter collectively referred to as the "Assets"),
subject only to the Franchise Agreements, the Agent Agreements (as defined in
Section 2.20 below), the International Agreement (as defined in Section 2.21
below), the Mexico Franchise Agreement (as defined in Section 3.9 below), the
Amico Franchise Agreement (as defined in Section 3.10 below), the Louisiana
Agreement (as defined in Section 5.1(c), below); and
WHEREAS, the Purchaser desires to purchase the Assets for the
consideration and under the terms and conditions set forth herein; and
WHEREAS, due to the Seller's expertise in and knowledge of the
Business, the Seller's competition with the Purchaser would cause the Purchaser
irreparable harm, the loss from which could not be adequately compensated by
damages in an action at law; and
WHEREAS, due to Xxxx X. Xxxxx'x expertise in and knowledge of the
Business and as partial consideration for this Agreement, Xxxx X. Xxxxx has
agreed to execute a Confidentiality and Noncompetition Agreement in the form
attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the terms and
conditions hereof, the parties agree as follows:
SECTION 1
SALE AND PURCHASE OF ASSETS
1.1 SALE AND PURCHASE. Subject to and on the express reliance upon the
warranties, representations and covenants set forth in this Agreement, the
Seller does hereby agree to sell, transfer and deliver to the Purchaser and the
Purchaser does hereby agree to purchase, acquire and accept from the Seller on
the Closing Date all rights, title and interest in and to the Assets for the
consideration set forth herein.
1.2 CONSIDERATION. The purchase price for the Assets being acquired
hereunder (the "Purchase Price") shall be as follows:
(a) AT THE CLOSING. The Purchaser shall pay to the Seller Two
Million and 00/100 Dollars ($2,000,000) in cash or by wire transfer
of federal funds on the Closing Date;
(b) EARN OUT. The Purchaser shall pay to the Seller an amount equal
to forty percent (40%) of all initial franchise fees and royalties
actually received and collected by the Purchaser pursuant to the
Earn Out Franchise Agreements during the period commencing on the
day after the Closing Date and ending on the sixth anniversary of
the Closing Date (the "Earn Out"). The Earn Out shall be payable
under the following terms and conditions:
(i) No Earn Out percentage will be due from the Purchaser
with respect to franchise fees and royalties from any
salon that has not been opened within eighteen (18)
months after the Closing Date;
(ii) No Earn Out percentage will be due from the Purchaser
with respect to the first Two Hundred and Fifty
Thousand ($250,000) of franchise fees and royalties
received and collected by the Purchaser under the
Earn Out Franchise Agreements;
(iii) The Earn Out percentage will be due and payable on or
before that date which is sixty (60) days after the
expiration of each of the first six (6) Years
following the Closing Date. For purposes of this
Agreement, an "Earn Out Year" shall mean each period
of January 1 through December 31 following the
Closing Date. Notwithstanding the above, no further
payments under the Earn Out shall accrue after
January 24, 2004;
(iv) The Purchaser shall have complete discretion with
respect to the Earn Out Franchise Agreements and may
without notice to or consent from the Seller
compromise, waive, release any obligation owed by any
franchisee under the Earn Out Franchise Agreements;
and
(v) The Purchaser shall have the right to deduct from any
payments due to the Seller under this Section 1.2(b)
an amount equal to the Revised Valuation set forth on
Schedule 2.8(a) for any salon listed on such schedule
that is closed on or before the first anniversary of
the Closing Date.
1.3 NO ASSUMPTION OF LIABILITIES. The Purchaser will not assume, nor
has the Purchaser agreed to pay for, any liability, claim or other obligation of
the Seller, whether now existing or arising in the future related to acts of the
Seller before the Closing Date (with the acknowledgement by the Seller that it
shall be responsible for its acts after the Closing Date), whether accrued,
contingent or otherwise, including without limitation, any liabilities of the
Seller accrued through the Closing Date, and the Seller shall remain responsible
for, and shall pay or provide for, all such liabilities, claims and other
obligations of the Seller arising on or before the Closing Date. The Seller
shall not be responsible for performance of any obligations of the franchisor
under any Franchise Agreements or under the Cost Cutters(R) franchise agreement
executed between the franchisee and The Barbers after the Closing Date. The
Purchaser shall assume responsibility for any acts of the Purchaser or
performance of any obligations of the franchisor under the existing Franchise
Agreements or under the Cost Cutters(R) franchise agreements executed between
the franchisee and The Barbers after the Closing Date. The Purchaser shall be
responsible for administration of the Franchise Agreements in compliance with
all state and federal laws after the Closing Date.
1.4 SALES TAXES. All sales taxes, and any other transfer taxes, payable
with respect to the transfer of the Assets shall be paid on the Closing Date by
the Seller.
1.5 THE BARBERS GUARANTY. To secure the payment of the obligations of
the Purchaser under Sections 1.2(b) of this Agreement, The Barbers hereby
guarantees the prompt payment when due of all payment obligations owed to the
Seller from the Purchaser under Section 1.2(b) of this Agreement.
SECTION 2
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER
In order to induce the Purchaser to enter into this Agreement, the
Seller represents and warrants to, and covenants with, the Purchaser as set
forth below:
2.1 ORGANIZATION OF THE SELLER. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has the corporate power and authority to own, lease and operate its properties,
to carry-out its Business as now being and as heretofore conducted, and to
execute and deliver, and to perform its obligations under, this Agreement and
any agreements to be executed in connection with this Agreement on the Closing
Date or thereafter. Each the Seller is duly qualified to conduct business in the
State of Delaware and in any other state as to which such qualification is
required by law. The Seller has duly obtained all licenses, permits, orders and
approvals under all applicable laws, regulations and ordinances that are
material to the conduct of its Business in the places and in the manner
currently conducted.
2.2 AUTHORITY. The execution, delivery, and performance of this
Agreement have been, and any agreements to be executed in connection with this
Agreement on the Closing Date will have been, duly and validly authorized and
approved by the Board of Directors and Shareholders, as necessary, of the
Seller, as evidenced by a certificate of the Secretary of the Seller to be
delivered to the Purchaser on the Closing Date, and no further corporate action
is required to authorize the execution, delivery or performance of this
Agreement, and any agreements to be executed in connection with this Agreement
on the Closing Date, by the Seller.
2.3 BINDING OBLIGATION. This Agreement has been, and any agreements to
be executed in connection with this Agreement on the Closing Date will have
been, duly executed by and on behalf of the Seller, and constitutes, or will
constitute when executed, valid and binding obligations of the Seller, which
obligations are enforceable in accordance with their terms, subject only to
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws.
2.4 NO BREACH. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby and thereby (a)
violates any provision of the Articles of Incorporation or Bylaws of the Seller;
(b) violates, conflicts with or results in the breach or termination of, or
otherwise gives any other contracting party the right to terminate, or
constitutes (or with notice or lapse of time, or both, would constitute) a
default (by way of substitution, novation or otherwise) under the terms of any
of the Franchise Agreements, the Leases (as defined below) or any contract,
mortgage, lease, bond, indenture, agreement, franchise or other instrument or
obligation that, individually or in the aggregate, would materially and
adversely affect the Seller, any of its assets or properties or the Assets; (c)
results in the creation of any lien, charge or encumbrance upon the properties
or assets of the Seller or the Assets pursuant to the terms of any such
contract, mortgage, lease, bond, indenture, agreement, franchise or other
instrument or obligation; (d) violates any judgment, order, injunction, decree
or award of any court, arbitrator, administrative agency or governmental or
regulatory body against, or binding upon, the Seller or upon the securities,
properties, Assets, or Business of the Seller; (e) constitutes a violation by
the Seller of any statute, law or regulation of any jurisdiction as such law or
regulation relates to the Seller or to the securities, properties, Assets, or
Business of the Seller that would materially and adversely affect the Seller or
any of their respective assets or properties, or the Assets; or (f) violates any
Permit (as such term is defined in Section 2.9 below) in a manner that would
materially and adversely affect the Seller or any of their respective assets or
properties, or the Assets.
2.5 FINANCIAL INFORMATION. The Seller has delivered to the Purchaser
true copies, certified by the chief financial officer or Treasurer of the
Seller, of financial information regarding royalties and sales of goods and
services by all franchisees of the Seller and the financial statements of the
Seller, audited by Robbins, Green, Xxxxxxxx, Xxxxxx & Co., LLP, for fiscal years
ended December 31, 1995, December 31, 1994 and December 31, 1993 and unaudited
interim financial statements for the nine months ended September, 30 1996 (the
"Financial Data"), which are set forth at Schedule 2.5 and incorporated herein
by reference. The audited financial statements contained within the Financial
Data for fiscal years ended 1995, 1994 and 1993 are audited in accordance with
generally accepted auditing standards, and all Financial Data is prepared in
conformity with generally accepted accounting principles, consistently applied
and in accordance with past and current practices of the Seller, so as to fairly
and accurately present the financial condition of the Seller in all material
respects as at their respective dates and for the periods then-ended. The
royalty and sales information contained within the Financial Data are true and
accurate representations of the exact information provided by the franchisees of
the Seller to the Seller for the periods reflected in such financial
information, and there is no circumstance, condition, event, arrangement or fact
that would indicate that such financial information may be materially and
adversely inaccurate.
2.6 TRADE NAMES, TRADEMARKS, SERVICE MARKS, AND COPYRIGHTS. Schedule
2.6 hereof sets forth all trade and fictitious business names, trademarks,
service marks, trade names, commercial symbols and copyrights, including but not
limited to Computer Related Intellectual Property (as defined below), used by
the Seller that are material to its Business. All of such rights are included in
the Intellectual Property Rights. The Seller does not use any of such rights by
consent of any other rightful owner thereof, and the same are fully assignable
(except as otherwise provided by law) and free and clear of any mortgages,
liens, claims, charges, security interests, encumbrances or other restrictions
or limitations whatsoever. The Seller has not received any claim of infringement
of any adversely held trademark, service xxxx, trade name, brand name, trade
names, commercial symbols, fictitious business name, copyright or franchise of
any other person relating to any of the rights and properties listed on Schedule
2.6.
2.7 PATENT AND PATENT RIGHTS. The Seller does not own or have rights in
or to any United States or foreign patents. There is no claim of infringement by
the Seller of any patent held, or asserted, by any other person or entity, and
the Seller knows of no basis for any such charge or claim.
2.8 FRANCHISE AGREEMENTS. Schedule 2.8(a) hereof sets forth, as of the
date hereof and as of the Closing Date, all of the Cash Franchise Agreements,
Schedule 2.8(b) hereof sets forth, as of the date hereof and as of the Closing
Date, all of the Earn Out Franchise Agreements, and Schedule 2.8(c) hereof sets
forth, as of the date hereof, and as of the Closing Date, all of the salons that
are under development. Together, Schedules 2.8(a) and 2.8(b) hereof set forth,
as of the date hereof and as of the Closing Date, all of the Franchise
Agreements under the We Care Hair(R) franchise system or any other business
system or trademark or service xxxx and all other contracts, agreements,
understandings or commitments with any franchisee under the We Care Hair(R)
franchise system and with any person or entity involving the Intellectual
Property Rights; attached to Schedules 2.8(a) and 2.8(b) is an accurate and
complete copy of each agreement between the Seller and each such person or
entity. There have been delivered or made available to the Purchaser true and
complete copies of all of the contracts and other written agreements set forth
on Schedules 2.8(a) and 2.8(b) or on any other Schedule. All of those contracts
and other agreements are valid, subsisting, in full force and effect (except as
otherwise provided by the terms thereof), and binding upon the Seller and on the
other parties thereto in accordance with their terms (subject to all bankruptcy
and insolvency laws) and the Seller has paid in full all amounts due by it
thereunder as of the Closing Date pursuant to this Agreement and has satisfied
in all material respects all of its liabilities and obligations thereunder and
is not in default under any of them, nor, to the knowledge of the Seller, is any
other party to any such contract or other agreement in default thereunder, nor
does any condition exist which, with notice or lapse of time or both, constitute
a default thereunder by the Seller or, to the knowledge of the Seller, by any
other party thereto, which default has or will have a materially adverse affect
on the Seller or the Assets. No approval or consent of any person is needed in
order that the contracts and other agreements as set forth on Schedule 2.8(a) or
2.8(b) or on any other Schedule continue in full force and effect following the
consummation of the transactions contemplated by this Agreement.
2.9 COMPLIANCE WITH LAWS. The Seller is not in violation of any
applicable judgment, order, injunction, award or decree. The Seller (a) is not
in violation of any material federal, state or local law, ordinance or
regulation, or any other requirement, guideline or standard of any governmental
or regulatory body, court or arbitrator applicable to the Business of the Seller
including, without limitation, state or federal franchising and business
opportunity laws, federal and state environmental or anti-trust laws, state or
federal laws relating to usury or the collection and payment of interest and
applicable state and local licensing, zoning, building and health and safety
laws and ordinances, the violation of which would materially and adversely
affect their respective assets (financial or otherwise) or the Assets and there
is no circumstance, condition, event or arrangement that is likely to materially
and adversely affect the Assets, and (b) would not be in violation of any such
law, ordinance, regulation, guideline, standard or other requirement that has
been enacted or adopted but is not yet effective if it were effective at the
date hereof or at the Closing Date. The Seller (including any professional
employees of the Seller) has all permits, licenses, orders or approvals of any
federal, state or local governmental or regulatory body (collectively, the
"Permits") that are material to or necessary in the conduct of the Business of
the Seller; all Permits are in full force and effect, no notices of violations
have been received by the Seller in respect of any Permit, no violations of the
Permits and no proceeding is pending or threatened to revoke or limit any
Permit.
2.10 ACTIONS AND PROCEEDINGS. Except as disclosed on Schedule 2.10
hereof, there are no actions, suits, claims or legal, administrative or
arbitration proceedings or investigations (whether or not the defense thereof or
liabilities in respect thereof are covered by policies of insurance) pending or
threatened against, involving or affecting the Seller or any of its respective
subsidiaries, affiliates, properties or assets, including but not limited to the
Assets which, individually or in the aggregate, might have a material and
adverse effect on the transactions contemplated hereby or upon its assets,
business, operations or condition (financial or otherwise), including but not
limited to the Assets, and there are no outstanding orders, writs, injunctions,
awards, sentences or decrees of any court, governmental agency, regulatory body
or arbitration tribunal against, involving or materially affecting the Seller or
the Assets (exclusive of any statute or regulation of general applicability).
Except as disclosed in Schedule 2.10, there is no fact, event or circumstance
that may give rise to any suit, action, claim, investigation or proceeding that
would be required to be listed on Schedule 2.10, if currently pending or
threatened against the Seller. Except as disclosed in Schedule 2.10 hereof,
there are no actions, suits, claims or legal, administrative or arbitration
proceedings pending or threatened which would give rise to any right of
indemnification from the Seller or any successor to the business of the Seller.
2.11 SUPPLIERS AND FRANCHISEES.
(a) Schedule 2.11(a) hereof sets forth (i) the Seller's twenty
largest suppliers (in dollar volume) during fiscal year ended December
31, 1996 and (ii) the name and address of each of the Seller's
franchisees.
(b) Except as set forth on Schedule 2.11(b), other than upon
contract completion, no such franchisee or supplier intends to cancel
or otherwise modify its relationship with the Seller or to decrease
materially or limit its services, supplies or materials to the Seller
or its usage or purchase of the services or products of the Seller, and
the consummation of the transactions contemplated by this Agreement
will not adversely affect the ability of the Purchaser to continue such
relationship with any such supplier or franchisee.
2.12 FULL DISCLOSURE. All documents, schedules and other materials
delivered or to be delivered by or on behalf of the Seller to the Purchaser in
connection with this Agreement and the transactions contemplated hereby are true
and complete. The information furnished by or on behalf of the Seller to the
Purchaser in connection with this Agreement and the transactions contemplated
hereby does not, in light of the circumstances in which the statements contained
in the information are made, contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements contained
therein not false or misleading. There is no fact not disclosed by or on behalf
of the Seller to the Purchaser in writing which materially and adversely affects
or will materially and adversely affect the Seller's assets, properties,
business, operations or condition (financial or otherwise), including but not
limited to the Assets, and no circumstance, condition, event or arrangement that
is likely to materially and adversely affect the Assets or the ability of the
Seller to perform its obligations under this Agreement.
2.13 RESOLUTION OF POTENTIAL CONFLICTS OF INTEREST. Except as set forth
on Schedule 2.13 hereof (which shall include a brief description of any matter
disclosed thereon), neither the Seller, nor any entity controlled by the Seller
nor any officer or shareholder of the Seller:
(a) owns, directly or indirectly, any interest in (excepting
not more than 5% stock holdings for passive investment purposes in
securities of publicly held and traded companies), or is or has been
during the one-year period prior to the date hereof, an officer,
director, employee or consultant of any person or entity which is or
has been engaged in business as a competitor, franchisee, landlord,
tenant, lender, provider, customer or supplier of the Seller or of any
franchisee or other affiliate of the Seller;
(b) owns, directly or indirectly, in whole or in part, any
material tangible or intangible property that the Seller uses or the
use of which is necessary or desirable for the conduct of Business of
the Seller; or
(c) has any cause of action or other claim whatsoever against,
or owes any amount to the Seller except for any accounts receivable
arising in the ordinary course of business, accrued vacation pay,
accrued benefits under employee benefit plans, and similar matters and
agreements existing on the date hereof or the Closing Date.
2.14 TITLE. The Seller has, or will have on the Closing Date, good and
marketable title to each item of the Assets free and clear of all liens, claims,
charges, security interests, encumbrances, or other restrictions or limitations
of any nature whatsoever.
2.15 NO CONSENT. No consent of any other party and no consent, license,
approval or authorization of, or exemption by, or registration or declaration or
filing with, any governmental authority, bureau or agency is required in
connection with the execution, delivery, validity or enforceability of this
Agreement with respect to the Seller or the consummation by the Seller of the
transactions contemplated hereby.
2.16 NO MATERIAL ADVERSE CHANGE. There has been no material adverse
change in the assets, properties, business, operations or condition (financial
or otherwise) of the Seller, including but not limited to the Assets, the
Business, since December 31, 1995, and there is no change that is threatened,
nor has there been any damage, breach of contract, destruction or loss
materially and adversely affecting the Seller's assets, properties,
relationships with its suppliers or franchisees, business, operations or
condition (financial or otherwise), including but not limited to the Assets and
the Business.
2.17 COMPUTER RELATED INTELLECTUAL PROPERTY.
(a) Schedule 2.17(a) to this Agreement is a true and complete
list which, without extensive or revealing descriptions, sets forth the
Seller's computer related intellectual property (all of which are
included within the definition of the Intellectual Property Rights and,
therefore, within the definition of the "Assets"), including all trade
secrets, know-how, computer software programs and routines, domain
names, website content and any proprietary rights arising under the
laws of patent, copyright, trademark or trade secret under the laws of
the United States or any foreign country (collectively, "Computer
Related Intellectual Property") to which the Seller or any director,
officer, employee, or agent of the Seller has use, possessory, or
proprietary rights, whether sole or shared. The specific location of
all of the Computer Related Intellectual Property's documentation,
including its complete description, specifications, charts, procedures
and other material relating to it, is also set forth with it in
Schedule 2.17(a). The Computer Related Intellectual Property's
documentation is current, accurate and sufficient in detail and content
to identify and explain it and to allow its full and proper use by the
Purchaser without reliance on the special knowledge or memory of
others.
(b) Neither the Seller, nor any director, officer, employee or
agent of the Seller has had any such proprietary rights which have been
transferred, whether by sale, assignment or license, or have been lost
for any reason, within the past two (2) years.
(c) All parts of the Computer Related Intellectual Property
are presently protected, and are not part of the public knowledge or
literature, nor have they been used, divulged or appropriated for the
benefit of any past or present employees or other persons, or to the
detriment of the Seller, except as contemplated by the Franchise
Agreements.
(d) The Seller is the sole owner of the Computer Related
Intellectual Property free and clear of any liens, encumbrances,
restrictions or legal or equitable claims of others, except as
contemplated in the Franchise Agreements. The Seller has taken
appropriate measures to protect the secrecy, confidentiality and value
of the Computer Related Intellectual Property.
(e) Any copies of software listed on Schedule 2.17(a) are in
the Seller's possession and control, except for certain copies of
software in the possession of franchisees of the Seller set forth on
Schedule 2.17(e), which franchisees have entered into license
agreements with the Seller also included as part of Schedule 2.17(e)
hereto.
(f) For purposes of this Section 2.17, the term "computer
software programs" includes any set of arithmetic or logical
instructions mean to run on, or to control the operation of, any
computer (i) whether those instructions are a complete program, a
collection of programs making up a subsystem or system, mere
subroutines or meant to operate in conjunction with other software and
(ii) whether such instructions must be run through another computer
program (i.e., a "compiler") before being usable on a computer, be used
at execution time in conjunction with another computer program (i.e.,
"interpreter") or are in a form that can be run on a computer "as is,"
except for any necessary interfaces with the computer's microcode,
operating system or reference-resolving routines (i.e., "loaders" or
"linkage editors").
2.18 FRANCHISEE BENEFIT PLANS AND INSURANCE. Schedule 2.18 sets forth
all pension, profit sharing, thrift, retirement, employee stock ownership,
deferred compensation, stock ownership, stock purchase, performance share,
severance, welfare benefit, insurance or other similar plans, agreements,
arrangements or understandings, including but not limited to any "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), sponsored, maintained or to
which contributions are made by (a) the Seller or (b) any other organization
which is a member of a controlled group of organizations (within the meaning of
Sections 4.14(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as
amended (the "Code")) of which the Seller is a member, and which covers or
covered any of the Seller's or existing or former franchisees or any existing or
former employees of existing or former franchisees.
2.19 TAX MATTERS. The Seller has timely filed or caused to be filed all
federal, state and other tax returns, forms and information that it and he are
required to file or have obtained appropriate, effective and unexpired
extensions therefor. All of the information in the filings are accurate and such
filings accurately reflect in all respects the tax liabilities of the filing
entity. Except for those amounts set forth on Schedule 2.19(a) (each of which
shall be paid in full by the Seller on or before the Closing Date), all taxes,
assessments and other governmental charges imposed upon the Seller or upon any
of the Assets, income or franchises of the Seller, including but not limited to
the Assets or the Business, or any sales by the Seller, other than any charges
that are currently payable without penalty or interest, have been paid. The
Seller acknowledges and agrees that the Purchaser shall have the right, but not
the obligation (it being understood by all parties that the Purchaser is
assuming under this Agreement no liabilities of the Seller whatsoever), to pay,
at the Closing, any such unpaid sums owed by the Seller to the Internal Revenue
Service or any state in which the Seller owes taxes or any other taxing or
governmental agency, including, but not limited to those amounts set forth on
Schedule 2.19(a), and to deduct such amounts paid by the Purchaser from the
amounts due from the Purchaser to the Seller at the Closing or thereafter. There
is no actual or proposed tax assessment or adjustment with respect to any item
which has to do with the Seller for any fiscal period. The Seller has not waived
or extended any applicable statute of limitations relating to the assessment of
federal, state or other taxes. Except as set forth on Schedule 2.19(b), no
examination of the federal, state or other tax returns, forms or information of
the Seller is currently in progress or threatened.
2.20 DOMESTIC DEVELOPMENT AGENT AGREEMENTS. Schedule 2.20 hereof sets
forth, as of the date hereof, all of the Development Agent Agreements in effect
under or relating to the We Care Hair(R), franchise system for territories
within the United States, except for the Louisiana Agreement (the "Agent
Agreements"); attached to Schedules 2.20 is an accurate and complete copy of
each Agent Agreement between the Seller and each such person or entity. There
have been delivered or made available to the Purchaser true and complete copies
of such Agent Agreements set forth on Schedule 2.20. No other Agent Agreements
or other agreements or documents pertaining to rights affecting the We Care
Hair(R) franchise system in the United States exist as of the date hereof or as
of the Closing Date.
2.21 INTERNATIONAL DEVELOPMENT AGREEMENTS. Schedule 2.21 hereof sets
forth, as of the date hereof, all of the Development Agreements in effect under
or relating to the We Care Hair(R) franchise system for territories outside the
United States, except for the Mexico Agreement (defined below) (the
"International Agreements"); attached to Schedules 2.21 is an accurate and
complete copy of each International Agreement between the Seller and each such
person or entity. There have been delivered or made available to the Purchaser
true and complete copies of such International Agreements set forth on Schedule
2.21. No other International Agreements or other agreements or documents
pertaining to rights affecting the We Care Hair(R) franchise system outside the
United States exist as of the date hereof or as of the Closing Date.
2.22 ACCOUNTS RECEIVABLE PRIOR TO CLOSING DATE. The Seller hereby
acknowledges that all accounts receivable existing as of the Closing Date due
from franchisees under the Franchise Agreements shall remain assets of the
Seller, and the Seller agrees it will attempt to collect such accounts
receivable only through the methods and efforts of the Purchaser or with the
Purchaser's prior written consent. The Purchaser agrees to forward to the Seller
payments on such accounts receivable received by the Purchaser, but it shall be
assumed, regardless of any instructions received from the franchisee, that any
payments received by the Purchaser from such franchisees are payments of
obligations currently due to the Purchaser and only after all such obligations
are paid to the Purchaser shall any excess be forwarded to the Seller as payment
of such accounts receivable due to the Seller.
2.23 CONVERSION OF FRANCHISE AGREEMENTS. The Seller hereby covenants
and agrees to assist the Purchaser in whatever manner possible in converting the
We Care Hair(R) salons and Franchise Agreements to Cost Cutters(R) salons and
franchise agreements.
2.24 WE CARE HAIR(R) CORPORATE SALONS. Schedule 2.24 hereof sets forth,
as of the date hereof and as of the Closing Date, all of the We Care Hair(R)
corporate salons (the "Corporate Salons" and each a "Corporate Salon"). The
Seller agrees that one (1) of the Corporate Salons shall close and cease
business operations or be sold as an independent business operation prior to the
first anniversary of the Closing Date. The Seller further acknowledges and
agrees that, with respect to each of four (4) of the Corporate Salons, the
Seller will, on or prior to the first anniversary of the Closing Date, either
close such Corporate Salon, sell such Corporate Salon as an independent business
operation, begin operating such Corporate Salon pursuant to an executed and
effective We Care Hair(R) franchise agreement with terms in form and content
satisfactory to the Purchaser, or begin operating such Corporate Salon pursuant
to an executed and effective Cost Cutters(R) franchise agreement. If the Seller
elects the sell such a Corporate Salon as an independent business, then the
Seller hereby agrees that the Purchaser or The Barbers shall have a thirty (30)
day right of first refusal to purchase the assets of such Corporate Salon on
terms similar to any other potential purchaser or, if none, on terms mutually
agreed upon at that time. The Seller further acknowledges and agrees that if
such Corporate Salons are operated as either a We Care Hair(R) salon or a Cost
Cutters(R) salon, all franchise fees, royalties and other fees shall begin to
accrue after the first anniversary of the Closing Date.
SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
In order to induce the Seller to enter into this Agreement, the
Purchaser represents and warrants to, and covenants with, the Seller as set
forth below:
3.1 ORGANIZATION OF THE PURCHASER. The Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of Minnesota,
and has the corporate power and authority to execute and deliver, and to perform
its obligations under this Agreement and any agreements to be executed in
connection with this Agreement on the Closing Date or thereafter. The Purchaser
is a wholly-owned subsidiary of The Barbers.
3.2 ORGANIZATION OF THE BARBERS. The Barbers is a corporation duly
organized, validly existing, and in good standing under the laws of Minnesota,
and has the corporate power and authority to execute and deliver, and to perform
its obligations under this Agreement and any agreements to be executed in
connection with this Agreement on the Closing Date or thereafter.
3.3 AUTHORITY. The execution, delivery, and performance of this
Agreement have been, and any agreements to be executed in connection with this
Agreement on the Closing Date will have been, duly and validly authorized and
approved by the Boards of Directors of the Purchaser and The Barbers,
respectively, as evidenced by certificates of the Secretary of the Purchaser and
The Barbers, respectively, to be delivered to the Seller on the Closing Date,
and no further corporate action is required to authorize the execution,
delivery, or performance of this Agreement, and any agreements to be executed in
connection with this Agreement on the Closing Date.
3.4 BINDING OBLIGATION. This Agreement has been, and any agreements to
be executed in connection with this Agreement on the Closing Date will have
been, duly executed by and on behalf of the Purchaser and The Barbers, and
constitutes, or will constitute when executed, valid and binding obligations of
the Purchaser and The Barbers according to their terms, which obligations are
enforceable in accordance with their terms, subject only to applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws.
3.5 NO CONFLICTS. The execution, delivery, and performance of this
Agreement, and any agreements to be executed in connection with this Agreement
on the Closing Date, by the Purchaser and the Barbers, does not and will not
violate, conflict with or result in a breach of, or constitute a default under,
any of the terms, conditions or provisions of the Articles of Incorporation or
Bylaws of each such corporation, any statute, law or regulation of any
jurisdiction as it relates to each such corporation, or any judgment, order,
injunction, decree or award of any court, arbitrator, administrative agency, or
governmental or regulatory body against or binding upon each such corporation.
3.6 LITIGATION AND OTHER PROCEEDINGS. There are no claims, actions,
suits or proceedings pending before any court or governmental authority or, to
the knowledge of the Purchaser, any investigations pending, or claims, actions,
suits, proceedings or investigations threatened, which question or challenge the
validity of this Agreement, and any agreements to be executed in connection with
this Agreement on the Closing Date, or any action taken or to be taken by the
Purchaser or The Barbers in connection with the transactions contemplated
hereby.
3.7 WE CARE HAIR(R) CORPORATE SALONS. The Purchaser agrees to allow
three (3) of the Corporate Salons set forth on Schedule 2.24, attached hereto,
to continue operating as We Care Hair(R) salons or to convert to Cost Cutters(R)
franchises, incurring no initial franchise fees or royalties until the ownership
of such salons transfers to a person or entity other than the Seller, Xxxx X.
Xxxxx, his wife, or any son or daughter of Xxxx X. Xxxxx. Such Corporate Salons,
whether operated as We Care Hair(R) salons or Cost Cutters(R) salons shall not
be obligated to pay initial franchise fees or royalties but shall be obligated
to pay all other fees due to the Purchaser, The Barbers or as agreed to by any
local group of franchisees, including but not limited to advertising fees on a
national or local level.
3.8 ACCOUNTS RECEIVABLE PRIOR TO CLOSING DATE. The Purchaser hereby
acknowledges that all accounts receivable existing as of the Closing Date due
from franchisees under the Franchise Agreements shall remain assets of the
Seller, and the Purchaser agrees, subject to the terms of Section 2.23 above, to
assist the Seller in the timely collection of such accounts receivable.
3.9 CURRENT MEXICO FRANCHISE OPERATION. The Purchaser acknowledges that
there currently exists a franchised We Care Hair(R) salon in Saltillo, Mexico,
which pays no franchise fees or royalties and receives no services from the
Seller and operates under a franchise agreement described and listed on Schedule
3.9 (the "Mexico Agreement"). The Purchaser agrees to continue to allow such
salon to operate under the terms and conditions of such franchise agreement.
3.10 FRANCHISE OPERATION OF XXXX AND XXXXXXX XXXXXXX. The Purchaser
acknowledges that there currently exists a franchised We Care Hair(R) salon at
an address of 0000 Xxxxx Xxxxxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000, which pays
no franchise fees or royalties and is operated under the franchise agreement
described and listed on Schedule 3.10 (the "Amico Franchise Agreement"). The
Purchaser agrees to allow such salon to operate under the terms and conditions
of such franchise agreement until the Disposition Date applicable to such salon.
Upon such Disposition Date, the franchisee must execute and thereafter must
perform all terms and conditions of either the then-current Cost Cutters(R)
franchise agreement or the then-current We Care Hair(R) franchise agreement.
SECTION 4
THE CLOSING
4.1 THE CLOSING DATE AND PLACE. The delivery of the xxxx of sale,
assignments, endorsements, authorizations, and other instruments of transfer for
the Assets by the Seller, and the delivery of the consideration by the Purchaser
(the "Closing") shall take place at the offices of Xxxxxxx, Xxxxxxx & Xxxxx,
PLC, at 1400 AT&T Tower, 000 Xxxxxxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx at 9:00
a.m. Minneapolis time, or some other location as mutually agreed upon by the
parties hereto, on January 24, 1997 (the "Closing Date").
4.2 ACTIONS AND DELIVERIES BY THE SELLER AT THE CLOSING. At the
Closing, the Seller shall deliver or cause to be delivered to the Purchaser,
against delivery of the items specified in Section 4.3 and 4.4 below the
documents provided for in the Closing Memorandum set forth herein as Schedule 4.
4.3 ACTIONS AND DELIVERIES BY THE PURCHASER AND THE BARBERS AT THE
CLOSING. At the Closing, the Purchaser shall deliver or cause to be delivered to
the Seller against delivery of the items specified in Section 4.2 above:
(a) the documents provided for in the Closing Memorandum set
forth herein as Schedule 4; and
(b) the cash portion of the Purchase Price due from Purchaser
pursuant to Section 1.2(a) above.
SECTION 5
CONDITIONS TO CLOSING
5.1 CONDITIONS PRECEDENT OF THE PURCHASER AND THE BARBERS. The
obligations of the Purchaser and The Barbers under this Agreement to be
performed on the Closing Date shall be subject to the conditions that:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. On or
before the Closing Date, the representations and warranties of the
Seller contained in this Agreement or any certificate or document
delivered pursuant to the provisions of this Agreement shall be true in
all material respects on and as of the Closing Date as though such
representations and warranties were made at and as of such date;
(b) COMPLIANCE WITH AGREEMENT. On or before the Closing Date,
the Seller shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with
by such parties prior to or at the Closing Date;
(c) AGREEMENT REGARDING LOUISIANA FRANCHISE TERRITORY. On or
before the Closing Date, the Seller shall have delivered a written
agreement regarding the right of Xxx Xxxxxxx to develop We Care Hair(R)
salons in Louisiana under terms satisfactory to the Purchaser, in its
sole discretion; provided, however, the Purchaser acknowledges and
agrees that such agreement will include the rights of such developer to
develop We Care Hair(R) salons on an exclusive basis in Louisiana, the
right to do so without any obligation to pay franchise fees, no right
to receive (and no obligation of the Purchaser or others to provide)
franchise or other support or services with respect to such development
or such salons, and shall be of a perpetual duration (the "Louisiana
Agreement");
(d) AGREEMENT WITH FRANCHISEE UNDER AMICO FRANCHISE AGREEMENT.
On or before the Closing Date, the Seller shall have delivered to the
Purchaser a written agreement executed by the franchisee under the
Amico Agreement which such person or entity shall have agreed, under
terms and conditions satisfactory to the Purchaser, and pursuant to the
provisions of Section 3.10 above.
(e) LICENSE AGREEMENT WITH XXXX X. XXXXX. On or before January
17, 1997, the Seller shall have delivered to the Purchaser a license
agreement governing the right of Xxxx X. Xxxxx or any affiliated
corporation to use the trademark "We Care Hair(R)" in order to
manufacturer and sell hair care products under the We Care Hair(R)
name, with terms and conditions in form and content satisfactory to the
Purchaser.
(f) STOCK PURCHASE AGREEMENT. On or before January 17, 1997,
the Seller shall have delivered to the Purchaser a stock purchase
agreement executed by the holders of one hundred percent (100%) of the
outstanding stock of We Care Hair Realty, Inc., a Delaware corporation,
pursuant to which such shareholders shall transfer and assign all
right, title and interest in and to all such issued and outstanding
voting stock of the We Care Hair Realty, Inc. to the Purchaser, with
terms in form and content satisfactory to the Purchaser, in its sole
discretion.
(g) FINANCING OF THE PURCHASER. On or before December 24,
1996, the Purchaser shall have received from Norwest Bank, N.A.,
written confirmation that financing is available to the Purchaser for
the transactions contemplated by this Agreement with terms and
conditions satisfactory to the Purchaser, in its sole discretion.
(h) SCHEDULES TO THIS AGREEMENT. On or before January 17,
1997, the Seller shall have completed and delivered to the Purchaser
all schedules and due diligence items referenced in this Agreement, and
such schedules and due diligence items shall have been, in all cases,
in form and content acceptable to the Purchaser, in its sole
discretion.
(i) ACCOUNTING OF ADVERTISING FUND. On or before January 17,
1997, the Seller shall have provided to the Purchaser an accounting,
for the three years prior to the Closing Date, of any franchisee
advertising fund in form and content satisfactory to the Purchaser. The
balance of any such franchisee advertising fund agreed upon by the
Purchaser following such accounting shall be transferred to the
Purchaser within thirty-one (31) days of the Closing Date.
5.2 CONDITIONS PRECEDENT OF THE SELLER. The obligations of the Seller
under this Agreement to be performed on the Closing Date shall be subject to the
following conditions that, on or before the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of
the representations and warranties of the Purchaser contained in this
Agreement or any certificate or document delivered pursuant to the
provisions of this Agreement shall be true in all material respects on
and as of the Closing Date as though such representations and
warranties were made at and as of such date; and
(b) COMPLIANCE WITH AGREEMENT. The Purchaser and The Barbers
shall have performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by such
parties prior to or at the Closing Date.
SECTION 6
THE SELLER'S OBLIGATIONS AFTER CLOSING
6.1 FURTHER ASSURANCES.
(a) INSTRUMENTS. The Seller, on and at any time after the
Closing Date, will execute, acknowledge, and deliver any further
assignments, conveyances, and other assurances, documents and
instruments of transfer reasonably requested by the Purchaser and will
take any other action consistent with the terms of this Agreement that
may be reasonably requested by the Purchaser for the purpose of
selling, transferring, assigning, granting, conveying, delivering or
confirming to the Purchaser any or all of the Assets as of the Closing
Date.
(b) ROYALTY PAYMENTS; EXISTING ROYALTY RECEIVABLES. In the
event that any franchisee pays to the Seller after the Closing Date,
any royalties or other fees or sums accruing after the Closing Date,
the Seller will immediately forward and pay over to the Purchaser such
royalties or other payments. With regard to accounts receivable arising
prior to the Closing Date and due to the Seller pursuant to the
Franchise Agreements, the Seller agrees it will attempt to collect such
accounts receivable only through the methods and efforts of the
Purchaser or with the Purchaser's prior written consent. The Seller
expressly agrees that it shall not, without the prior written consent
of the Purchaser, commence legal action for the purposes of collecting
any such accounts receivable or other amounts existing on the Closing
Date against such franchisee under the Franchise Agreements.
(c) ENFORCEMENT. If reasonably requested by the Purchaser, the
Seller, at the Purchaser's sole cost and expense, further agrees to
prosecute or otherwise enforce in its own name for the benefit of the
Purchaser any claims, rights or benefits that are transferred to the
Purchaser by this Agreement and that require prosecution or enforcement
in the Seller's name.
(d) USE OF WE CARE HAIR DEVELOPMENT, INC. AS CORPORATE NAME.
The Seller agrees not to use the corporate name "We Care Hair
Development, Inc.," or any name confusingly similar to such corporate
name or to any of the Intellectual Property Rights after the Closing
Date. The Seller further agrees to deliver to the Purchaser evidence
satisfactory to the Purchaser that the Seller has taken all necessary
steps to change its corporate name on or before the Closing Date.
(e) ADVERTISING FUNDS. The balance of any franchisee
advertising fund agreed upon by the Purchaser following an accounting
under Section 5.1(i) on the Closing Date shall be transferred to the
Purchaser within thirty-one (31) days of the Closing Date.
6.2 INDEMNIFICATION BY THE SELLER.
(a) INDEMNIFICATION. Subject to the provisions of Sections
6.2(d) below, the Seller hereby agree to indemnify and hold harmless
the Purchaser and its respective officers, directors, partners,
employees, agents and counsel, from and against any and all damages or
deficiencies resulting from (i) any misrepresentation, breach of
warranty or nonfulfillment of any covenant, indemnity, undertaking or
agreement on the part of the Seller contained in this Agreement or any
agreement executed in connection with this Agreement, (ii) any
liability or obligation arising before the Closing Date from under, or
with respect to the operations of the Business or Assets and (iii) any
and all actions, suits, proceedings, demands, assessments or judgments,
costs or expenses (including, but not limited to, reasonable attorneys'
fees and other costs and expenses incident to proceedings or
investigations or to the defense of any claim) related to any of the
foregoing. Any liability under this Section 6.2 shall accrue and be due
and payable to the Purchaser as and when such damages or deficiencies
are accrued and due and payable by the Purchaser, as the case may be.
(b) WITHHOLD AND OFFSET. In the event the Purchaser claims in
writing that it is entitled to indemnification by the Seller pursuant
to this Section 6.2 specifying the amount and nature of the claim in
reasonable detail, then, among all other rights and remedies (none of
which are exclusive and all of which are cumulative), the Purchaser
shall have the right to withhold a like amount of all payments of the
Earn Out due and payable pursuant to Section 1.2 (b) above.
(c) DEFENSE OF CLAIM. If the Purchaser (the "Indemnified
Party") asserts that the Seller has become obligated to the Indemnified
Party pursuant to this Section 6.2, or in the event that any suit,
action, investigation, claim or proceeding is begun, made or instituted
as a result of which the Seller may become obligated to an Indemnified
Party under this Section 6.2, then the Indemnified Party shall give
prompt written notice thereof to the Seller. The Seller shall have the
right, at their expense and with counsel of their choosing, to control
and defend, contest, settle (at no cost to the Indemnified Party) or
otherwise protect against any such suit, action, investigation, claim
or proceeding. The Indemnified Party shall have the right, but not the
obligation, to participate at its own expense in the defense thereof by
counsel of the Indemnified Party's choice. In any event, the
Indemnified Party shall cooperate with the Seller in the defense of any
such suit, action, investigation, claim or proceeding. Without limiting
the generality of the foregoing, the Indemnified Party shall furnish
documentary or other evidence as is then in its possession as may
reasonably be requested by the Seller for the purpose of defending
against any such suit, action, investigation, claim or proceeding. In
the event that the Seller does not elect to control and defend,
contest, settle or otherwise protect against any such suit, action,
investigation, claim or proceeding, the Indemnified Party may do so and
the Seller shall indemnify the Indemnified Party and reimburse the
Indemnified Party's expenses as incurred.
(d) LIMITATIONS. Notwithstanding anything to the contrary
contained in this Agreement, the Seller shall not be liable to the
Purchaser for any amounts under this Section 6.2 unless and only to the
extent any claims against the Seller under this Section 6.2 are made by
the Purchaser by notice to the Seller on or before the third
anniversary of the Closing Date. The limitation set forth in this
Section 6.2(d) shall not apply to any actions, suits, proceedings,
demands, assessments or judgments, costs or expenses (including, but
not limited to, reasonable attorneys' fees and other costs and expenses
incident to proceedings or investigations or to the defense of any
claim) arising under or in connection with Section 2.19 or 2.9 of this
Agreement.
SECTION 7
PURCHASER'S OBLIGATIONS AFTER CLOSING
7.1 FURTHER ASSURANCES.
(a) ROYALTY PAYMENTS. The Purchaser agrees to forward and pay
over to the Seller any and all franchise fees or royalties received by
the Purchaser on or after the Closing Date from franchisees under the
Franchise Agreements to the extent such franchise fees or royalties
relate to accounts receivable existing on the Closing Date due from
such franchisees for sales generated by such franchisees, and other
liabilities accruing, prior to the Closing Date, it being understood,
however, that all payments received by the Purchaser on or after the
Closing Date from or in respect to such franchisees shall first be used
to pay all franchise fees and royalties and other obligations due from
such franchisees under the Franchise Agreements for sales generated and
other liabilities accruing on or subsequent to the Closing Date and
only the excess, if any, after all such liabilities accruing on or
after the Closing Date have been paid shall any amount be paid by the
Purchaser to the Seller for application to the accounts receivable or
other amounts due for liabilities accruing prior to the Closing Date.
Subject to the foregoing, the Purchaser acknowledges and agrees to
assist in the collection any of the franchise fees or royalties due
from such franchisees occurring prior to the Closing Date.
(b) PAYMENTS TO SELLER FOR SALONS UNDER DEVELOPMENT. The
Seller currently has certain salons under development, which salons are
identified as such on Schedule 2.8(c). In the event that one or more of
such development salons open for business within eighteen months after
the Closing Date (the "Open Development Salons"), then, with respect
the Open Development Salons, the Purchaser shall pay to the Seller the
Earn Out percentage in accordance with the terms of Section 1.2 (b)
above on all franchise fees and royalties actually received and
collected by the Purchaser from the franchisees of such Open
Development Salons. The Seller shall be paid no money with respect to
any salon under a franchise agreement listed on Schedule 2.8(c) that
opens for business on or after that date which is eighteen (18) months
after the Closing Date.
(c) CONVERSION INCENTIVE. The Purchaser hereby agrees to offer
to the franchisee of any We Care Hair(R) salon the option to convert
such salon to a Cost Cutters(R) salon under the following terms and
conditions: (i) the converting franchisee converts such We Care Hair(R)
salon to a Cost Cutters(R) salon prior to first anniversary of the
Closing Date by executing the standard Cost Cutters(R) franchise
agreement; (ii) the converting franchisee shall pay no initial
franchise fee normally required under then-current Cost Cutters(R)
standard franchise agreement; (iii) the converting franchisee shall pay
royalties at the rate of seven percent (7%) of sales generated by the
converting salon for the first two (2) years after the date of
conversion; and (iv) the converting franchisee shall pay royalties at
the rate of six percent (6%) of sales generated by the converting salon
for that period beginning on the second anniversary of the date of
conversion and extending to the end of the term of such Cost Cutters(R)
franchise agreement, all as stated in such agreement.
(d) INSTRUMENTS. The Purchaser on and at any time after the
Closing Date, will execute, acknowledge, and deliver any further
assurances, documents and instruments of transfer, reasonably requested
by the Seller and will take any other action consistent with the terms
of this Agreement that may be reasonably requested by the Seller for
the purpose of concluding the transactions contemplated by this
Agreement.
7.2 INDEMNIFICATION BY THE PURCHASER
(a) INDEMNIFICATION. Subject to the provisions of Section
7.2(c) below, the Purchaser hereby agrees to indemnify and hold
harmless the Seller, and the Seller's officers, directors, partners,
employees, agents, stockholders and counsel, from and against any and
all damages or deficiencies resulting from (i) any misrepresentation,
breach of warranty or nonfulfillment of any covenant, indemnity,
undertaking or agreement on the part of the Purchaser or The Barbers
contained in this Agreement or any agreement executed in connection
with this Agreement, (ii) any liability or obligation arising after the
Closing Date from, under, or with respect to the operation of the
Assets after the Closing Date, and (iii) any and all actions, suits,
proceedings, demands, assessments or judgments, costs or expenses
(including, but not limited to, reasonable attorneys' fees and other
costs and expenses incident to proceedings or investigations or to the
defense of any claim) related to any of the foregoing. Any liability
under this Section 7.2 shall accrue and be due and payable to the
Seller as and when such damages or deficiencies are accrued and due and
payable by the Seller, as the case may be.
(b) DEFENSE OF CLAIM. If the Seller (the "Indemnified Party")
asserts that the Purchaser has become obligated to the Indemnified
Party pursuant to this Section 7.2, or in the event that any suit,
action, investigation, claim or proceeding is begun, made or instituted
as a result of which the Purchaser may become obligated to the
Indemnified Party under this Section 7.2, then the Indemnified Party
shall give prompt written notice thereof to the Purchaser. The
Purchaser shall have the right, at its expense and with counsel of its
choosing, to control and defend, contest, settle (at no cost to the
Indemnified Party) or otherwise protest against any such suit, action,
investigation, claim or proceeding. The Indemnified Party shall have
the right, but not the obligation, to participate at its own expense in
the defense thereof by counsel of the Indemnified Party's choice. In
any event, the Indemnified Party shall cooperate fully with the
Purchaser in the defense of any such suit, action, investigation, claim
or proceeding. Without limiting the generality of the foregoing, the
Indemnified Party shall furnish the Purchaser with documentary or other
evidence as is then in its possession as may be reasonably requested by
the Purchaser for the purpose of defending against any such suit,
action, investigation, claim or proceeding. In the event that the
Purchaser does not elect to control and defend, contest, settle or
otherwise protect against any such suit, investigation, claim or
proceeding, the Indemnified Party may do so and the Purchaser shall
indemnify the Indemnified Party and reimburse the Indemnified Party's
expenses as incurred.
(c) LIMITATIONS. The indemnification set forth in this Section
7.2 shall survive the Closing Date. Notwithstanding anything to the
contrary contained in this Agreement, the Purchaser shall not be liable
to the Seller for any amounts under this Section 7.2 unless and only to
the extent any claims against the Purchaser under this Section 7.2 are
made by the Seller by notice to the Purchaser on or before the third
anniversary of the Closing Date.
SECTION 8
NONDISCLOSURE AND NON-COMPETE
8.1 CONFIDENTIAL INFORMATION.
(a) CONFIDENTIAL INFORMATION. For purposes of this Agreement,
"Confidential Information" shall mean any information, knowledge and
know-how, not known to the general public, regarding the Purchaser's or
The Barbers' processes and products, customers, suppliers, accounts,
financial statements, business systems, and any other information,
knowledge and know-how relating to the Purchaser's or The Barbers'
business, including, but not limited to, any information, knowledge and
know-how regarding the Purchaser's or The Barbers' research,
development, purchasing, pricing, franchising, accounting, engineering,
marketing, merchandising, selling, leasing, servicing, financing and
business techniques. In addition, "Confidential Information" shall mean
any information disclosed to the Seller, or to which the Seller obtains
access, whether originated by the Seller or by others, which the Seller
should reasonably believe to be confidential or proprietary to the
Purchaser or The Barbers, or which is treated by the Purchaser or The
Barbers as being confidential or proprietary. "Confidential
Information" shall include, but not be limited to, trade secret and all
client and customer information of the Purchaser.
(b) NONDISCLOSURE. The Seller shall not in any manner or form
disclose, provide or otherwise make available, in whole or in part, any
Confidential Information to any person or entity without the prior
written consent of the Purchaser or The Barbers, as the case may be.
The Seller shall not in any manner or form use or permit others within
the Seller's control to use any Confidential Information for the
Seller's or Amico's own account or for the account of others without
the prior written consent of the Purchaser or The Barbers, as the case
may be. The Seller shall take all necessary or advisable action,
whether by instruction, agreement or otherwise, to insure the
protection, confidentiality and security of, and to satisfy the
Seller's obligations under this Agreement with respect to the
protection, confidentiality and security of, all Confidential
Information.
8.2 COVENANTS NOT TO COMPETE.
(a) DURING RESTRICTED PERIOD. Except with the prior written
consent of the Purchaser, the Seller shall not, within the geographic
limits of the United States of America, for the period of fifteen (15)
years after the Closing Date (the "Restricted Period"), on the Seller's
own account, or as a consultant, partner, associate, agent, or
shareholder of any other person, firm, entity, partnership or
corporation:
(i) solicit, accept or receive any commissions, fees
or income, including but not limited to commissions from or in
respect of any business competitive to the business or
services of the Purchaser or The Barbers from any person or
entity which was or is an account, client, or customer of the
Purchaser or The Barbers prior to or during the Restricted
Period, or
(ii) contact, solicit or call upon any person or
entity which was or is an account, client or customer of the
Purchaser or The Barbers prior to or during the Restricted
Period for the purpose of selling, providing or performing
business competitive to the business of the Purchaser or The
Barbers; or
(iii) induce or attempt to induce any person or
entity to curtail or cancel any business which such person or
entity had with the Purchaser or The Barbers; or
(iv) induce or attempt to influence any employee of
the Purchaser or The Barbers to terminate his or her
employment with the Purchaser or The Barbers; or
(v) own, operate, lease, franchise, conduct, engage
in, be connected with, have any interest in or assist any
person or entity engaged in any business competitive to the
business of the Purchaser or The Barbers.
The Seller expressly agrees that the time period and the described scope are the
reasonable and necessary time and scope needed to protect the legitimate
business interests of the Purchaser and The Barbers. Nothing contained in this
Section 8.2 shall prevent or restrict the Seller from owning or acquiring,
directly or indirectly, not more than five percent (5%) of the securities of any
publicly held and traded company for the purposes of passive investment.
(b) EXTENSION DURING BREACH. The Seller agrees that the time
period described in Section 8.2 shall be extended beyond such period
for a period equal to the duration of any breach of this Section 8.2 by
the Seller.
(c) "COMPETITIVE" BUSINESS. For the purposes of this Section
8, a business or activity shall be "competitive" to the business or
services of the Purchaser or The Barbers if such business activity
involves in any fashion in the hair care services industry, unless (i)
such activity is limited exclusively to the manufacture, distribution
and sale of hair care products; or (ii) such activity is limited to the
ownership and operation of the salons listed on Schedule 8.2(c)
attached hereto.
8.3 REMEDIES. The Seller agrees that the provisions of this Section 8
are necessary to protect the legitimate business interests of the Purchaser and
The Barbers and The Barbers and to prevent the unauthorized dissemination and
use of Confidential Information and Innovations to and by competitors of the
Purchaser and The Barbers. The Seller also agrees that the Purchaser and The
Barbers will be irreparably harmed and that damages alone cannot adequately
compensate the Purchaser and The Barbers if there is a violation or breach by
the Seller of this Agreement, and that injunctive relief is essential for the
protection of the Purchaser and The Barbers. The Seller therefore agrees that in
case of any alleged violation or breach by the Seller of this Agreement, the
Purchaser and The Barbers shall be entitled to specific performance of this
Agreement and shall be entitled to obtain injunctive relief without posting any
bond or security whatsoever. The rights to such equitable remedies as provided
in this Section 8 shall be in addition to all other rights and remedies which
the Purchaser and The Barbers may have under this Agreement or applicable law.
8.4 PUBLIC POLICY. It is the desire and intent of the Purchaser, The
Barbers and the Seller that the provisions of this Section 8 be enforced to the
fullest extent permissible under the laws and public policy applied in each
jurisdiction in which enforcement is sought. Accordingly, if any part of this
Section 8 is adjudicated to be invalid or unenforceable, then this Section 8
shall be deemed amended to delete that portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of this
Section 8 in the particular jurisdiction in which such adjudication is made.
Further, to the extent any provision of this Section 8 deemed unenforceable by
virtue of its scope or limitation, the Purchaser, The Barbers and the Seller
agree that such provision shall, nevertheless, be enforceable to the fullest
extent permissible under the laws and public policies applied in such
jurisdiction where enforcement is sought.
SECTION 9
COSTS AND BROKER'S FEES
9.1 COSTS BORNE BY PARTIES. Except as otherwise provided herein, the
Seller and the Purchaser shall pay all costs and expenses incurred by them in
negotiating and preparing this Agreement and in closing and carrying out the
transactions contemplated by this Agreement.
9.2 BROKER'S FEES. The Purchaser and the Seller each represent and
warrant to the other that it or they did not deal directly or indirectly with or
through any broker or finder in connection with the transactions contemplated by
this Agreement.
SECTION 10
FORM OF AGREEMENT AND SEVERABILITY
10.1 HEADINGS. The subject headings of the Sections of this Agreement
are not a part of this Agreement and are included for purposes of convenience
only, and shall not affect the construction or interpretation of any of its
provisions.
10.2 ENTIRE AGREEMENT. This Agreement, and the agreements executed in
connection with this Agreement, constitutes the entire agreement between the
parties pertaining to the subject matter contained in it and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by the party against whom enforcement is
sought. No waiver of any of the provisions of this Agreement shall be deemed, or
shall constitute, a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
10.3 COUNTERPARTS. This Agreement may be executed simultaneously in
more than one counterpart, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.4 SEVERABILITY. If any terms or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity of the other terms
and provisions hereof shall in no way be affected thereby.
10.5 INCORPORATION OF EXHIBITS AND SCHEDULES. All exhibits and
schedules attached hereto in this Agreement are incorporated in this Agreement
as though fully set forth herein.
SECTION 11
PARTIES
11.1 OTHER PARTIES. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action against any party to this Agreement.
11.2 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests, and obligations hereunder shall be assigned by any of
the parties hereto without prior written consent of each of the other parties
hereto.
SECTION 12
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations, warranties, opinions, or other writings provided
for in this Agreement and the covenants and agreements to be performed or
complied with by the respective parties before or on or after the Closing Date
shall be deemed to be continuing and shall survive the Closing.
SECTION 13
NOTICES
All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given (a) on
the date of service if served personally on the party to whom notice is to be
given, (b) on the second day after mailing, if mailed to the party to whom
notice is to be given by first class mail, registered or certified, postage
prepaid, and properly addressed as set forth below, or (c) on the first day
after delivering the same to a reputable courier service, such as DHL or FedEx
if delivered to such courier service, fees prepaid, with the instructions to
deliver the same under the quickest service possible to the addresses set forth
below:
To the Seller (prior to closing): WE CARE HAIR DEVELOPMENT, INC.
0000 Xxxx 000xx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xx. Xxxx X. Xxxxx,
President
With a Copy To: __________________________________________
__________________________________________
__________________________________________
__________________________________________
Attention: ____________________________
To the Seller (after to closing): ___________________________________
0000 Xxxx 000xx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xx. Xxxx X. Xxxxx,
President
With a Copy To: __________________________________________
__________________________________________
__________________________________________
__________________________________________
Attention: ____________________________
To the Purchaser: WCH, INC.
000 Xxxxxxxxxx Xxxx., XX
Xxxxxxxxxxx XX 00000
Attention: Xx. Xxxxxxxxx Xxxxxxx, Xx.
With a Copy To: XXXXXXX, XXXXXXX & XXXXX, XXX
0000 AT&T Tower
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xx. Xxxx X. Xxxxxxxxxx
Attorney at Law
To The Barbers: THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
000 Xxxxxxxxxx Xxxx., XX
Xxxxxxxxxxx XX 00000
Attention: Xx. Xxxxxxxxx Xxxxxxx, Xx.
With a Copy To: XXXXXXX, XXXXXXX & XXXXX, XXX
0000 AT&T Tower
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xx. Xxxx X. Xxxxxxxxxx
Attorney at Law
Any party may change its address for purposes of this Section by giving the
other parties notice of the new address in the manner set forth above; provided,
however, any notice of change of address shall not be effective until received.
SECTION 14
PUBLICITY; CONFIDENTIALITY
14.1 PUBLIC ANNOUNCEMENT. Except as required by federal securities laws
or applicable state securities laws and announcement to its franchisees by The
Barbers, the parties agree not to make any public announcement of this
transaction or any of its terms or conditions without first consulting with and
obtaining the prior written consent of all parties.
SECTION 15
GOVERNING LAW
This Agreement, the rights and obligations hereunder, and the remedies
available hereunder or at law shall be governed and construed in accordance with
the substantive laws of the State of Minnesota. By execution of this Agreement,
the parties hereto agree to submit to personal jurisdiction in the State of
Minnesota for the purposes of any suit or proceeding brought to enforce or
construe the terms and conditions of this Agreement.
SECTION 16
ARBITRATION
Any dispute, claim or controversy arising out of relating to this
Agreement, or breach, termination or invalidity thereof, shall be finally
settled by arbitration in accordance with applicable procedural rules of the
American Arbitration Association in effect on the date of execution of this
Agreement by one (1) arbitrator selected and mutually agreed upon by the
Purchaser, The Barbers and the Seller. In the event that the parties hereto are
unable to select an arbitrator, then any party to the Agreement may request that
the American Arbitration Association select an arbitrator. The place of
arbitration shall be Minneapolis, Minnesota. The determination of the arbitrator
shall be final and binding upon the parties to the arbitration. Judgment upon
any award rendered by the arbitrator may be entered in any court of competent
jurisdiction. In the event that arbitration proceedings are commenced by any
party hereto against any other party in connection with this Agreement or the
transactions contemplated hereby, the party that does not prevail in such
proceedings shall pay its own expenses and the reasonable attorneys' fees, court
costs, litigation expenses and other costs and expenses incurred by the
prevailing party in such proceedings.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed to be effective as of the date first above written.
The "Seller"
WE CARE HAIR DEVELOPMENT, INC.
By /s/ Xxxx X. Xxxxx
------------------------------------
Xxxx X. Xxxxx
Its President
The "Purchaser"
WCH, INC.
By /s/ Xxxxxxxxx X. Xxxxxxx, Xx.
------------------------------------
Xxxxxxxxx X. Xxxxxxx, Xx.
Its President
"The Barbers"
THE BARBERS, HAIRSTYLING FOR
MEN & WOMEN, INC.
By /s/ Xxxxxxxxx X. Xxxxxxx, Xx.
------------------------------------
Xxxxxxxxx X. Xxxxxxx, Xx.
Its President
